Putting an end to six years of litigation, the Washington Supreme Court has refused to review an appeals court ruling that found Prudential Securities Inc. did not violate state securities laws by selling most of the $20 million of bonds that were illegally issued by an arm of the Holmes Harbor Sewer District.
The high court issued an order on March 8 denying the bondholders' petition for a review of the favorable Prudential ruling, which had been handed down by the Washington State Court of Appeals in April 2007.
The bondholders had been seeking almost $30 million from Prudential, claiming the firm had failed to properly investigate disclosures in the official statement for the bonds that were later found to be false and misleading.
But the appeals court, as well as the lower trial court, were swayed by Prudential's claims that it did not help prepare the disclosure documents and only reviewed them to make sure the bonds were appropriate to sell to investors.
Lawyers from both sides of the case yesterday said the high court ruling puts an end to litigation that began in 2002 when the bondholders sued most of the transaction participants.
"We're pleased that this matter finally appears to be at an end and that Prudential prevailed," said Gilbert R. Serota, a lawyer with Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco, which represented Prudential.
"It is at an end," agreed David Hoff, a lawyer with Tousley Brain Stephens PLLC in Seattle, which represented the bondholders. Hoff pointed out that the court's ruling is a "nonpublished opinion so it doesn't have any precedential value."
The dispute revolved around roughly $20 million of tax-exempt bonds that were sold in October 2000 by a local improvement district, created by the Holmes Harbor Sewer District, to finance the development of an office park. In August 2001, the state auditor issued a report concluding that the bonds were not validly issued because the project was outside the sewer district's area of jurisdiction.
The office park was never built, but more than half the proceeds of the bonds were used for land acquisition and fees and the bonds went into default.
The bondholders sued transaction participants in October 2001. Eventually they obtained more than $15 million from settlements and funds connected with the project. The bondholders received $2.9 million in settlements with U.S. Trust Co. NA, the trustee for the bonds, and Wedbush Morgan Securities Inc., a broker-dealer that sold some of the bonds.
The bondholders also obtained $9.9 million in undisbursed bond proceeds that were held by the trustee. They also obtained a total of $1.6 million from co-bond counsel - Michael McCall and his former firm, Schuering, Zimmerman & Scully in Sacramento, and Charles Tull, and his former firm, Langabeer, Tull & Lee PS in Bellingham, Wash., as well as the sewer district and four of its commissioners. In addition, the bondholders received about $2.28 million from the sale of property on which the office park was to be built.